U.S. District Court Finds that Transfers into Pooled Trusts by Persons Over Age 64 May Be Penalized by Medicaid

A Maine federal district court dismisses a challenge to the state’s practice of treating deposits into pooled special needs trusts (SNT) by individuals age 65 and over as transfers of assets for less than fair market value and subject to a penalty under Medicaid.  Richardson v. Hamilton (D. Me., 2:17-cv-00134-JAW, Feb. 27, 2018). 

Medicaid beneficiary Yvonne Richardson sold her home and deposited the proceeds in the Maine Pooled Disability Trust (MPDT).  More than 64 years old, Ms. Richardson relies on Medicaid to cover part of the costs of her nursing care facility. The Maine Department of Health and Human Services (MDHHS) notified her that it would suspend her Medicaid benefits as a result of the asset transfer because it considered the transfer to be for less than fair market value. Ms. Richardson filed an administrative appeal and, together with MPDT, also filed a 42 U.S.C. §1983 class action lawsuit against MDHHS, seeking to enforce rights they claim to have pursuant to Medicaid Act provisions 42 U.S.C. §§ 1396a(a)(18) and 1396p.  

The lawsuit alleges that trust beneficiaries receive fair market value from the expenditures the trust can make on their behalf, and that Medicaid does not impose a transfer-of-assets penalty for deposits into pooled SNTs.  MDHHS moved to dismiss the federal court action, claiming that the Medicaid Act requires it to treat asset transfers as it does.

In response to an earlier opinion by the court seeking additional argument on four issues, MDHHS further argued that exceptions to eligibility penalties do not apply to individuals over age 64 and that Ms. Richardson’s claims were unripe because the pending appeal stayed MDHHS’s suspension of benefits.  Ms. Richardson argued that judicial economy and the class nature of her claim overcame challenges of ripeness.  MPDT averred that the Medicaid Act, 42 U.S.C. § 1396p(d)(4)(C) exempts pooled SNTs from 42 U.S.C. § 1396p(c)’s prohibition against disposing of assets for less than fair market value, allowing trusts to be funded without penalty. It also argued that the Medicaid Act grants it rights that are enforceable under 42 U.S.C. § 1983.  The court addressed each issue in detail. 

The United States District Court for the District of Maine dismisses the complaint.  Ms. Richardson’s claims are dismissed without prejudice as unripe because she has not and may never be affected by MDHHS’s decision, depending on the outcome of her administrative appeal.  Therefore, it does not reach the question of whether the trust conveys fair market value to its beneficiaries.  The court finds that § 1396p(d)(4)(C) does create rights that pooled SNTs such as MPDT can enforce through a § 1983 claim.  However, the court concludes that § 1396p(c)(2)(B)(iv) expressly protects the transfer of assets to an SNT only by individuals under 65 years of age with disabilities. 

To read the court’s full opinion, click here.